I'm an expert in business growth and overcoming organizational obstacles to success and a public speaker at conferences and management meetings on how to grow your organization. I'm a workshop leader for companies wanting to find their next growth engine, an author of "Create Marketplace Disruption: How to Stay Ahead of the Competition" (Financial Times Press), a contributing editor for "International Journal of Innovation Science" and a leadership columnist for CIOMagazine and ComputerWorld. I am a former head of business development for Pepsico and Dupont, consultant with The Boston Consulting Group and am currently Managing Partner for Spark Partners. Harvard MBA. Hail from Chicago.

The Good, Bad and Ugly - Apple, Google, Dell

Apple’s latest news to start paying a big dividend, and buying back shares, is a boon for investors. And it signals the company’s future strength. Often dividends and share buybacks indicate a company has run out of growth projects, so it desires to manipulate the stock price as it slowly pays out the company’s assets. But, in Apple’s (rare) case the company is making so much profit from existing businesses that they are running out of places to invest it – thus returning to shareholders!

I’ve called Apple the lowest risk, highest return stock for investors (the stock to own if you can only own one stock) for several years. And Apple has not disappointed. At $600/share the stock is up some 75% over the last year (from about $350,) and up 600% over the last 5 years (from about $100.) And now the company is going to return investors $10.60/year, currently 1.8% – or about 4 times your money market yield, or about 75% of what you’d get for a 10 year Treasury bond. Yet investors still have a tremendous growth in capital opportunity, because Apple is still priced at only 14x this year’s projected earnings, and 12 times next year’s projected earnings!

Apple keeps winning. It’s leadership in smart phones continues, as the market converts from traditional cell phones to smart phones. And its lead in tablets remains secure as it sells 3 million units of the iPad 3 over the weekend. In every area, for several years, Apple has outperformed expectations as it leads the market shift away from traditional PCs and servers to mobile devices and using the “cloud.”

Google was once THE company to emulate. At the end of 2008 its stock peaked at nearly $750/share, as everyone thought Google would accomplish nothing short of world domination (OK, a bit extreme) via its clear leadership in search and the way it dominated internet usage. But that is no longer the case, as Google is being eclipsed by upstarts such as Facebook and GroupOn.

What happened? Even though it had a vaunted policy of allowing employees to spend 20% of their time on anything they desired, Google never capitalized on the great innovations created. Products like Google Wave and Google Powermeter were created, launched – and then subsequently left without sponsors, management attention, resources or even much interest. Just as recently happened with GoogleTV.

They floundered, despite identifying very good solutions for pretty impressive market needs, largely because management chose to spend almost all its attention, and resources, defending and extending its on-line ad sales created around search.

YouTube is a big user environment, and one of the most popular sites on the web. But Google still hasn’t really figured out how to generate revenue, or profit, from the site. Despite all the user activity it produces a meager $1.6B annual revenue – and nearly no profit.

Android may have share rivaling Apple in smartphones, but it is nowhere in tablets and thus lags significantly in the overall market with share only about half iOS. Worse, Android smartphones are not nearly as profitable as iPhones, and now Google has made an enormous, multi-billion investment in Motorola to enter this business – and compete with its existing smartphone manufacturers (customers.) To date Android has been a product designed to defend Google’s historical search business as people go mobile – and it has produced practically no revenue, or profit.

Chrome browsers came on the scene and quickly grew share beyond Firefox. But, again, Google has not really developed the product to reach a dominant position. While it has good reviews, there has been no major effort to make it a profitable product. Possibly Google fears fighting IE will create a “money pit” like Bing has become for Microsoft in search?

Chromebooks were a flop as Google failed to invest in robust solutions allowing users to link printers, MP3 players, etc. – or utilize a wide suite of thin cloud-based apps. Great idea, that works well, they are a potential alternative to PCs, and some tablet applications, but Google has not invested to make the product commercially viable.

Google tried to buy GroupOn to enter the “local” ad marketplace, but backed out as the price accelerated. While investors may be happy Google didn’t overpay, the company missed a significant opportunity as it then faltered on creating a desirable competitive product. Now Google is losing the race to capture local market ads that once went to newspapers.

While Google chose to innovate, but not invest in market development, it missed several market opportunities. And in the meantime Google allowed Facebook to sneak up and overtake its “domination” position.

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I think Google is still at only 10% of their full potential, and will see incredible growth over the next 5-10 years. People look at Google and see only the short-term and forget about all the far-reaching projects they have in development that will eventually be huge businesses – such as Drive (cloud storage), Apps, Assistant, self-driving cars, cloud robotics and others. And Google+ is doing exactly what they want it to do – add an “identity” layer across all their services.

Thanks for your excellent comment Alex Murphy! I agree that Google has been, and remains, a company of immense opportunity. My concern is that leadership – including the new CEO – now seems unable to leverage that opportunity, and innovation, into sales and profits. Mr. Page appears to be mentoring from Mr. Ballmer and choosing to keep Google very focused on defending its historical success – mostly around search. I’m concerned that they’ve dropped almost anything unrelated, and have frequently under-invested in potentially enormous opportunities.

Additionally, Google seems to fall victim to what I call “flu like marketing.” By that I mean they throw up a product on the market, then wait and see if anyone catches it. Since the initial product often is far from pretty and desirable, when they don’t achieve spectacular early response leadership lets the product flounder rather than figuring out how to make it great – and achieve the response desired. I’m concerned that leadership, when allocating resources, doesn’t know how to avoid over-investing in what it knows while under-investing in new markets far from the “core.”

The problem I see is that Google has always been about “opportunity”, but they simply don’t seem to have the patience (most of the time) to let these things grow and succeed. Too many (as Adam points out) are started, but are abandoned before they have a chance at real success.

There are rarely overnight successes, and some that we think are really aren’t. Facebook has been out there for 8 years. Twitter has been going for 6. YouTube is 7 years old. None were envisioned to be important parts of the Internet. Facebook faced stiff competition from MySpace and Friendster.

Having lots of “stuff” in the pipeline is no guarantee of success, and without a commitment to finish what they start, they could end up as perennial “starters”, and continue to rely on ads to fund this other stuff.

I think you are missing a big piece of the story with Dell. Enterprise and Services now make up 31% (and growing) of revenue and more in profit. Like IBM, Dell is transitioning away from machines to much more profitable services. Dell has $8.40 per share in cash – giving an enterprise value/earnings ratio of under 5. The stock is a steal at these prices.

Thanks for commenting Jim Fritzsche. Your point about adding services is well taken. Dell bought a large player – wasn’t it Perot Systems? The problem with that strategy is that it is, even worse than PCs, out of date. It was the 1990s when IBM shifted to services to make money, and the game is far, far different today. Dominant competitors are offshore, such as TCS (Tata Consulting Services) and Infosys. The pricing has dropped so low, with such razor thin margins, that it nearly bankrupted EDS before being acquired by HP. And CSC almost dropped out of the commercial services business entirely in the early 2000s.

Worse, SaaS (software as a service) and cloud-based apps are making the services business smaller, and far less productive than in earlier times. Customers can find a lot more “by the drink” without hiring a services provider. Data centers are disappearing, as are those large enterprise applications. More and more the need for PC management is disappearing, as are help desks. It isn’t clear that the services business will be any more vibrant than PCs – and to be successful you need the kind of clear, powerful programs like IBM is selling. Dell is far from that model, and continues to remain focused on supply chain management and PCs by and large.

Adam: The Perot Systems acquisition was just the start of a series of acquisitions for Dell. Since then, we’ve had several related to storage (EquallLogic and Compellent), networking (Force 10) and software. We recently hired John Swainson to lead our software efforts, and already have a announced a couple of software acquisitions. Dell has been putting the pieces together to address the needs of today’s IT customer, not those of the 1990s.

And speaking of tablets, I’ll just say take a look at Steve Felice’s recent comments. We’re not just going to sit still and not do anything in the mobile devices space.

One other point that I’ve made before is that about 80% of Dell’s revenue comes from businesses. And while that landscape is undergoing change as well, we’re positioned to provide support for mobile devices in the enterprise.

I’m not trying to take anything away from Apple… no question they’ve done some pretty impressive things in recent years. But in my view, we’ve got a lot of things to look forward to in the future.